This page has been archived and commenting is disabled.
Is ISDA About To Be Forced To Cave?
Given the TBTF's dominant oligopoly of the credit derivatives market (due mainly to the large exchange's unwillingness to act appropriately when they know the blow-back from their sell-side clients would be considerable), it is perhaps surprising that ISDA (the body that 'regulates' watches over and determines credit events in the CDS market) is coming under increasing pressure to honor the spirit of CDS contract after the FUBAR debacle surrounding the Greek restructuring. As Katy Burne notes in today's WSJ, ISDA is set to decide on a revamp of the CDS rules within weeks as pressure from the buy-side (the other side of the trade obviously) to alter the legal wording governing what is (and is not) a credit event trigger. "Whether it is a series of small fixes or a root-and-branch rewrite is still to be decided" but we note that the market - as we discussed in depth with regard to Portugal over the weekend - is becoming more comfortable once again with the CDS contract as a hedge against 'problems' in the $2.9 trillion sovereign credit derivatives market. This is without doubt a positive step - as opposed to the typical silent arrogance of the ISDA or more broad dismissal of CDS (ban them - they are to blame) arguments that political leaders will tend to bias to. The simple fact of the matter is that CDS have been a much less manipulated market indicator of real-money stress than bonds for much of the last four months and with Portugal's basis normalizing (presumptively on the back of lower concerns at CDS event risk dislocation), perhaps real-money will slow its bond selling (choosing to hedge instead) and/or Italian/Spanish banks will be forced to buy back protection en masse to cover the huge leap in exposure they have taken on - especially with the surcharge chatter of Basel III re-appearing.
Portugal's CDS-Bond basis imploded as traders lost confidence in CDS as a EU sovereign restructuring hedge...
»
- 7491 reads
- Printer-friendly version
- Send to friend
- advertisements -
Not the D word!!!
Hedge? We don't need no stinking hedge!
I have a solution: create sovereign INSURANCE that covers ALL CDS and derivatives and bond product. And then when that insurance is untenable, create an insurance on the insurance ad infinitum....yes i realize we are essentially already doing that, but NOT with insurance product specific to these more at on these financial products.
Should be good for employment. We had pizza delivery guys making a cool million writing mortgages .I'd say they are plenty qualified to write insurance on insurance on insurance policies.
Okay Doc glad you're in! What do we call our new enterprise then?
Vasaline?
VastEngali, LLC.
Note: no false advertising, unlike bankster/insurance industries, as there shall be no lube when we cover you -- it will hurt and you will grow to like it, or else....
“Democracy is also a form of worship. It is the worship of Jackals by Jackasses. It is the theory that the common people know what they want, and deserve to get it good and hard.”
H.L. Mencken - 1930s
Our motto can be....Just give us your money and we will pretend like you are getting something in return.
Or simply:
"Your money, our returns."
I think you guys are on to something. You're going to need a review/judgement board. I'll happily provide these services on the fifth friday of each leap year during high tide.
If you go to European market, choose slogan "We cheat you honestly", as Europeans care about honesty a lot.
Banks screwing banks that screw other banks - awesome.
hey. I know, we can change the rules on the fly!
First, your return was not part of our negotiations nor our agreement so I must do nothing. And secondly, you must be a pirate for the pirate's code to apply and you're not. And thirdly, the code is more what you'd call "guidelines" than actual rules.
A credit event is or is not when a credit event is or is not a credit event. There I saved you from all that branchy tree structury stuff.
But it's the branching feature that contains all of the value! Obfuscating the linear is simply too hard to get away with.
the mommy rule. when does a credit event occur..Like when we were kids. " WHEN I SAY SO , thats when"
"Mommy rule" that's a keeper.
This is too rich (no pun intended). Crooks deciding when/if they'll pay out to other crooks. Honor among thieves apparently does not apply when the thieves are banksters
The CDS "market" is where fiat goes to die. Ignore the paper and ask yourself what bank has re-hypothicated the most physical. Nothing else will matter. Possesion is now 100% of the law.
'Traders becoming more comfortable with CDS trading again'....freakin lemmings no matter how many times theyre smashed by the giant anvil, they come back for more.
What are they worried about? It's not their money they are playing with,and if they lose too much the fed will print them some more.
On a long enough timeline even the Masters of the Universe run out of time.
It depends on what the meanig of the word "is" is.
A bunch of smart guys bought worthless insurance? LMAO!!
edit: we need another gse to dump off losing cds contracts on the taxpayer. The name: nancy mae.
I dislike the frequent use of strikethrough.
I've chosen this post to whine abiout it because I've noticed that it was used concurrently with the 'winking-air-quote' polythingamasymbol.
They probably cancel each other out in a court of contextual punctuation law, but I just wanted to whine because I find it makes stuff harder to read sometimes. When it's used a lot. Which it wasn't here. But I need a new monitor anyway. Maybe that's it.
Hp 27" LCD Monitor...
OT.. is anyone watching C-SPAN 2 on the CTFC being asked questions over the failure of MF Global? It's all a fucking huge farce.
CTFC: "We weren't actually there when it happened, but the SEC sez someone was on top, hiding a salami (whatever that means!)."
CDS = insurance. The difference being astronimical amounts of leverage involved. The leverage is so huge when a CDS pays off is a terrifying event akin to a nuclear bomb going off. CDS should be banned!
CDS = insurance on someone else's house.
its the cds that has no clothes that bothers me
ECB Fear Indicator near record level
Banks deposited 793 billion with the ECB
also good site about CDS and interest rates
http://www.cds-info.com
I am a bit confused here because I believe before there was a zh post about one trader at jpm who was moving the mkarket himself with the size of trades. then you say cds is accurate. how accurate can a mrket be if it's shoved around by one trader?
From what I gather, CDS spreads are the last canary left in the coal mine, even though, long term they are most likely worthless.
Luckily for the bots (and their carbon-based jockeys), long-term is measured in micro-seconds.
Will we ever see a world in which the word "default" means that you couldn't pay back 100% of your obligation?
How the fuck is this a positive step?
"Well last time CDS's were worthless, but if you build a new ponzi on these new CDS's it will work out just fine in the end."
If the contracts are improved then next time it will just be counterparty risk which collapses the ponzi ... and it will be government again expected to pick up the pieces. The fact that CDS's became worthless was the positive step! You're turning things on it's head Tyler.
Not all ponzi schemes are implemented by government ... the market is more than capable and willing to implement them themselves ... and by god, are CDS's ever a ponzi.
The the legal phrasing in the contract is changed, governments will change it back after the fact by decree.
Stop thinking they must obey laws. They MAKE laws. And they can defund courts that disagree.
This fiscal and monetary stuff is not going to bring the system down. They can stop all those events by decree.
Insurance that needs to be adapted to cover the insurance that covers an item that is rumored to exist in the real world, when no evidence exists for it being real in reality.
Maybe the ISDA will go on record as to whether today is really a day, which one it really is, and if it is supposed to be out of order to help balance things out. Reason is gone, All the bad acid is in the koolaid, and someone drank it even with the warning notice on the bottle.
ISDA can't afford to cave. Or more accurately, the powers who control the ISDA can't afford a determination of default, given the size of the derivatives market which they are all heavily tied into. I think it's silly to expect the ISDA to ever make a default determination on any sovereign debt. By extension, that makes CDS contracts on sovereign debt worthless.
They can't afford to determine default on the old CDS's ... but they can build another ponzi with new CDS's for the sovereign debt of countries which won't fail for a while.
Of course those CDS's will turn out to be just as worthless ... but by then TPTB have already enriched themselves off the new Ponzi and will be telling the few remaining governments which aren't bankrupt yet they need to save the financial system.
Meanwhile, Spain is looking for a bad bank:
"MADRID -- As their losses from mortgages grow, Spanish banks have begun discussions about creating a separate entity - a "bad bank" - to take on these assets and relieve pressure on the country's financial sector."
http://www.sacbee.com/2012/04/30/4453524/spanish-lenders-in-talks-over.html
Try the US Federal Reserve...I hear they'll take anything. At one time, they were even discounting Jamie Dimon's used toilet paper
What's funny of course, is that all banks are already "bad." So what they're really trying to do is to create a "good" bank that might survive the Zombocolypse intact.
Gaaaaaaaiiiiiiiinnnnnnnsssss!
From http://globaleconomicanalysis.blogspot.com/:
Martin Feldstein, writing for the Financial Times says Taxpayers must backstop Spain’s budget
Interest Rate Swaps, CDS and their ilk are the "Insurance schemes" which provided a sense of "protection" as the Debt/Credit Mania swept the entire planet. This is the "Mother of all Manias", and is so large that most commentators can only see portions of it: ie - housing, commercial RE, sovereign debt, student loans debt, etc.
From what I have gleaned reading the web, the TBTF banks are the ones making the most money selling CDSs. ISDA's flip-flopping, which raised concerns about the reliability of CDSs as a hedging product likely led to less CDS purchases, which impacts TBTF profits from both issuance (collecting the "insurance"premium) and trading (taking the middle-man cut), putting a dent in what is likely one of the higher margin activities (at least short-term).
Perceived lack of hedging ability led folks to want to sell sovereigns - not good for the confidence game, CB balance sheets, and finding buyers for new debt.
What a surprise that ISDA is now trying to reestablish confidence in these products.
However, if a major crisis does ensue, do you want to be a counterparty to a TBTF? Given what I have seen so far, when the real push comes to shove, CDS owners will be the new bagholders.